Claims-made policies vs. occurrence policies

[hzhang]

In Marker & Mohl's "Rating Claims-Made Insurance Policies", it states the major differences between those two policies. It says "Under claims-made we are always pricing next year's claims. Under occurrence pricing, we must take into account claims to be reported many years in the future." Why? Could someone please explain?

[Avi]

Because for "Claims-Made" policies the only possible claims are those that are reported in that year. Next year is a different policy.


Occurrence forms cover whatever occurred in that year, even if it is discovered and reported many years in the future.

This comes up in Med Mal. For example, an OB/GYN is negligent in a delivery in 2000. Ramifications are not discovered until the child is in school, 6 years later. Under a claims made policy, the 2000 policy does not have to concern itself with the issue. It is 2006.

However it is the 2000 PY policy that covers this event.

In the intervening 6 years trends have been enormous, so while a 2006 year claim has 2006 year medical and indemnity costs factored in to its pricing, the 2000 year policy has collected WAY too little premium.

HTH.